Breaking News
Investing Pro 0
Donate to earthquake relief efforts in Turkey and Syria Donate

Fed Easing Will Surely Come In Q1 2023

By Ashraf LaidiMarket OverviewJul 28, 2022 10:06AM ET
www.investing.com/analysis/fed-easing-will-surely-come-in-q1-2023-200627778
Fed Easing Will Surely Come In Q1 2023
By Ashraf Laidi   |  Jul 28, 2022 10:06AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
USD/JPY
+0.21%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XAU/USD
+0.15%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DX
-0.10%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
Gold
+0.24%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
IXIC
-0.32%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US2US...
+0.00%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Quickly summarizing why the 2nd straight quarterly GDP contraction does not qualify as a recession is due to the negative inventories factor, which not only can be revised higher later but mainly tends to be a sign of strength and not final demand. One thing for sure is that the US economy is clearly slowing and could well contract for a 3rd consecutive quarter. No need to spend any more time on this. Wednesday's 75 bp rate hike from the Fed was clearly interpreted as dovish after Powell gave up on forwarding guidance in favor of data dependence.

Dovish traders (or bond bulls) will point to Powell's readiness to slow growth in order to further bring down inflation. With the broadening signs of rising jobless claims, peaking inflation expectations, and broadening yield curve inversions (more on this below), Fed easing will surely come in Q1 2023.

XAU/USD, DXY, Gold/Silver Ratio Weekly Charts
XAU/USD, DXY, Gold/Silver Ratio Weekly Charts

Hawkish traders (bond bears) may agree with the doves but will point to an additional 75-100 bps in rate hikes in September and November, followed by a December pause. This means there is plenty of time for consolidation in USD pairs and periodic rebounds in yields, even if 3.40-50% on the 10-yr may not be seen again.

When Is That Recession Coming?

It will come. But traders should be more concerned with the timing of Fed rate cuts (or one rate cut) rather than the official announcement of recession—usually a futile outdated even. It’s also likely that any recession will be short-lived, that by the time the NBER announces it, we’d be out of it.

So when is the next rate cut?

In my last post about yield curves, I indicated that out of the 4 popular measures of US yield curves, 3 have clearly entered inversions, with the exception of the 10yr/3mth spread. Since the post, the 10yr/3mth has fallen from 75 bps to 20 bps, before rebounding to 35 bps. Why is this particular yield curve measure such a big deal? Each time it inverted (fell below zero), the US entered recession 10-15 months later, which means Fed easing would start 4-6 months prior to that, thereby fitting January 2023. Or, they could wait for the March meeting with the latest dot plots.

Tell Me About Levels

Let’s start with gold. It appears the yellow metal will show another major August inflection point, as it has done in 2021, 2018, 2020, 2019, 2018, 2017, and 2016. Before you rush to correct me, I said inflection, not peak or trough. Or, I may be wrong, and the bottom was already seen last week. Anyway, you get the idea.

The head and shoulder formation in US 10-yr yields and USD/JPY becomes more apparent daily, and Wednesday confirmed that point in USD/JPY.

Long gold right after the Fed decision, as well as NASDAQ Composite, were among the trades we shared with our WGP. The 10-yr yield neckline is making USD/JPY an obvious short. But there’s more to it than all that.

Fed Easing Will Surely Come In Q1 2023
 

Related Articles

Lance Roberts
Bull Now, Bear Later? By Lance Roberts - Feb 07, 2023 6

Last week, we discussed why the more bullish technical formations were at odds with the many recession forecasts. Not surprisingly, that article generated substantial pushback from...

Fed Easing Will Surely Come In Q1 2023

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Harihara sudhan
Harihara sudhan Jul 28, 2022 8:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold will come 1680 usd ?
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email